US States: High Debts and Labor Unionism

Some debt crisis stricken US states could be facing debt downgrades soon.

From Businessweek/Bloomberg,

The debt of 30 California cities, including Oakland, Fresno and Sacramento, has been placed under review for downgrades because of economic pressures in the state, Moody’s Investors Service said.

The examinations may affect $14.3 billion in lease-backed and general-obligation debt issued by the municipalities, the New York-based company said yesterday in a statement.

“California cities operate under more rigid revenue- raising constraints than cities in many other parts of the country,” Eric Hoffmann, who heads Moody’s California local government ratings team, said in a statement. “Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state’s economic recovery tracks the nation’s.”

Communities in California have struggled to stay afloat by cutting staff and services to make up for a drop in sales and property tax revenue in the wake of the recession. Stockton, San Bernardino and Mammoth Lakes have gone into bankruptcy court since June.

Moody’s said it identified the credits as part of a broader review started in August of 95 rated cities in California.

The general-obligation bond ratings of Los Angeles, now Aa3, fourth-highest,and San Francisco, Aa2, third-highest, are on review for upgrades, Moody’s said.

Such developments merely reminds us that the US remains highly fragile to lingering debt problems.

Also, the prospective downgrades reminds me of an article that I recently came across which associates high levels of debt with high levels of ‘forced’ unionization.

From DScoundrels.com (hat tip Charleston Voice)

After discovering that the Top 10 states with the highest tax rates were all Forced Union states, it comes as no surprise that the top states with the worst debt trouble are also Forced Union states. Back in January Forbes tallied up several factors to identify which states were in the worst debt trouble (50 being the worst). The ‘Debt Per Capita and Unfunded Pensions Per Capita’ number is how much is owed per person in the state. Forbes looked at the following:

The metrics we looked at for each state included unfunded pension liabilities, changes in tax revenue, credit agency ratings, debt as a percentage of Gross State Product, debt per capita, growth expectations for employment and the state economy, net migrations and a moocher ratio that compares government employees, pension burdens and Medicaid enrollees to private-sector employment.

Forced Union vs Right-to-Work States:

Of the top 15 states with the worst debt troubles every one listed is a Forced Union state other than Mississippi and Louisiana. These states are outliers because they have assumed larger debt due to rebuilding after the devastation of Hurricane Katrina. Of the top 15 states with the least debt troubles, all but 4 (New Hampshire, Montana, Colorado and Indiana) are Right-to-Work states. Note that in 2005 Governor Daniels of Indiana revokedthe collective bargaining rights of public sector unions.  It is also notable that the Forced Union states have a higher percentage of unionized government workers than the Right-to-Work states.

Read the rest here.

Due to the mass production and centralized organization structure which characterized the industrial age, labor unions used to represent highly influential vested groups. 

Chart from the conservative Heritage Foundation 

They still are politically influential but a lot less than what had been.

Proof of this is that some of President Obama’s policies have been conspicuously pro-union e.g. auto bailouts.

However due to globalization and the deepening of the information age, labor union trends have been on a decline worldwide.

Governments in the past has implemented inflationism to pacify US labor union groups.

As the great Ludwig von Mises narrated,

The very essence of the interventionist politicians' wisdom is to raise the price of labor either by government decree or by violent action on the part of labor unions. To raise wage rates above the height at which the unhampered market would determine them is considered a postulate of the eternal laws of morality as well as indispensable from the economic point of view. Whoever dares to challenge this ethical and economic dogma is scorned both as depraved and ignorant. Many of our contemporaries look upon people who are foolhardy enough "to cross a picket line" as primitive tribesmen looked upon those who violated the precepts of taboo conceptions. Millions are jubilant if such scabs receive their well-deserved punishment from the hands of the strikers while the police, the public attorneys, and the penal courts preserve a lofty neutrality…

Firmly committed to the principles of interventionism, governments try to check this undesired result of their interference by resorting to those measures which are nowadays called full-employment policy: unemployment doles, arbitration of labor disputes, public works by means of lavish public spending, inflation, and credit expansion. All these remedies are worse than the evil they are designed to remove.

I believe that a lot of the advocates for the mercantilist-inflationists dogma are those bearing a nostalgia for big labor union days.

Unfortunately for them, today’s political priorities have shifted. Governments, along with their central banks, have been supporting mostly the crony banking system (through asset prices) whom has served as key financier to welfare-warfare based political institutions.

Worse, the era of labor union, welfare-warfare and big government are being seriously challenged by growing forces of decentralization and by internal atrophy from unsustainable government spending-debt dynamics.